Correlation Between Discover Financial and WESCO International

Can any of the company-specific risk be diversified away by investing in both Discover Financial and WESCO International at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Discover Financial and WESCO International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Discover Financial Services and WESCO International, you can compare the effects of market volatilities on Discover Financial and WESCO International and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Discover Financial with a short position of WESCO International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discover Financial and WESCO International.

Diversification Opportunities for Discover Financial and WESCO International

0.69

Correlation Coefficient

Discover Financial  WESCO International

Poor diversification

The 3 months correlation between Discover and WESCO is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Discover Financial Services and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International and Discover Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Discover Financial Services are associated (or correlated) with WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of Discover Financial i.e., Discover Financial and WESCO International go up and down completely randomly.

Pair Corralation between Discover Financial and WESCO International

Assuming the 90 days horizon Discover Financial Services is expected to under-perform the WESCO International. In addition to that, Discover Financial is 1.11 times more volatile than WESCO International. It trades about -0.08 of its total potential returns per unit of risk. WESCO International is currently generating about -0.07 per unit of volatility. If you would invest  17,051  in WESCO International on December 21, 2024 and sell it today you would lose (1,851) from holding WESCO International or give up 10.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Discover Financial Services  vs.  WESCO International

Discover Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discover Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

WESCO International

Risk-Adjusted Performance

Very Weak

Over the last 90 days WESCO International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Discover Financial and WESCO International

The main advantage of trading using opposite Discover Financial and WESCO International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discover Financial position performs unexpectedly, WESCO International can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in WESCO International will offset losses from the drop in WESCO International's long position.

The idea behind Discover Financial Services and WESCO International pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.